The government wants higher-earning council tenants to pay more rent because it’s concerned that hard-working people are “subsidising the lifestyles of those on higher than average incomes”. But have they looked carefully at whose housing is taxpayer-subsidised? And is the answer what they say it is? The UK Housing Review 2016, published this week (see link to report below this blog), can help us unravel what turns out to be a complicated question.

First, taxpayer subsidies are far from confined to tenants in social housing. Was tax relief on mortgages called a taxpayer subsidy when it cost some £8bn annually in the 1990s? It was certainly seen that way when it was finally scrapped in April 2000. So it’s at least arguable that capital gains tax relief, and the lack of any tax on the on-going value of a property (other than council tax) are also tax-payer subsidies. And they now add up to over £10bn and £13bn respectively of tax unpaid by private house owners. Even readers who reject the notion that tax relief is a subsidy would have to accept that lower income owners do get direct subsidy – through help with mortgage costs when they lose their job, and through shared ownership and other schemes. These currently add up to a modest £800m per year.

Private landlords and tenants also get taxpayer subsidies. The government spends £9bn on private sector housing benefit, which can be seen either as part of income support to tenants or a subsidy to landlords. Either way, the money comes from the taxpayer and ends up in landlords’ pockets. While it’s true that the cost of housing benefit for council and housing association tenants is higher in total (at £15bn), the average cost per tenant is far higher for private tenants (£108 per week) than council (£82) or housing association (£92) tenants, simply because rents in the private sector are higher too.

Subsidies for private housing don’t end there. Many people assume ‘subsidy’ means government money that helps towards the cost of building houses, not just the cost of living in them. This is true, and the current government has just made a dramatic switch in the way it directs its capital subsidies. Grants to housing associations to build affordable rented homes are planned to fall from nearly £1bn this year to only £130m by 2018.

Altogether, the UK Housing Review shows that while government support for affordable rented housing now totals £18bn, it is dwarfed by support for the private market – mainly for homeownership – which now totals £42bn. By 2020, practically all the government’s capital investment in housing will be aimed at helping homeowners. To take just one example of the different subsidies, some 250,000 people have signed up for a Help to Buy ISA, which will give them up to £3,000 towards a deposit, and is expected to cost tax payers at least £2.2bn.

Where does this leave the tenants earning more than £30,000 per year who the government says have ‘subsidised lifestyles’, to be targeted through its Pay to Stay scheme for tenants in social housing? Oddly enough, working council tenants who receive no housing benefit have a plausible claim to be the least subsidised of all types of householder. Such tenants are paying the full cost of the housing they use together with any debt which councils hold. How do we know this? Because the coalition government in April 2012 forced councils to make their council housing ‘self-financing’, which means that all costs have to be covered by rents. Not only this, but the Treasury also obliged councils to take on several billions of extra debt as part of the deal. In effect then, each tenant pays extra rent that funds this benefit to the Treasury.

Housing association tenants are not in the same position because many live in houses that have been grant-aided. But these grants have been cut by more than half their value per unit under the present government, and are due to fall further still. Currently, one fifth of all new affordable rented homes are built with no grant at all, which means effectively that other tenants pay higher rents to fund the costs of their neighbours’ new homes.

So how does the government calculate that social tenants each receive £3,500 subsidy from taxpayers every year? The truth is that this is not money paid by the taxpayer at all; it is the difference between the rents actually paid and those that would be charged if the homes were to be let by a private landlord. While this is properly classed as an ‘economic subsidy’, it doesn’t add to people’s tax bills and is a largely meaningless figure given that councils and housing associations are non-profit organisations. In any case, as we have seen, people on much higher incomes than £30,000 are still able to get tax-payer subsidies, as long as they want to be homeowners. For example a shared ownership applicant can get subsidy if they earn £80,000 per year, the buyer of a Starter Home can get a discount worth up to £45,000 if they earn up to £100,000 per year, and social tenants on any income can get subsidies of up to £104,000 as a Right to Buy discount.

So who gets taxpayer-subsidised housing? Whether or not you accept all my arguments, dear reader, you must agree that the answer is not quite as simple as the government would lead you to believe. Let’s leave the issue by posing a question. In his July Budget, the Chancellor said that taxpayers subsidise social housing to the tune of £13bn per year. Yet he also announced a cut in social housing rents, which the IFS said would save the Treasury £1.7bn annually. But shouldn’t making the gap between social rents and market rents bigger than it is have made the subsidy bigger still?

Original post and comments: Inside Housing